FinancialTimes: Ukraine: profit from chicken and eggs

The country’s top poultry and egg producers, both leading blue chips listed on the London Stock Exchange, released impressive 2012 results on Tuesday.

MHP, the country’s largest poultry producer, reported $1.4bn in net sales, a year-on-year 15 per cent increase, a 17 per cent surge in earnings before interest, taxation, depreciation and amortisation ($468m) and a 20 per cent increase on net income ($311m) with a margin of 33.2 per cent.

Investors were not only pleased by the numbers, but by the company’s decision to pay out its first dividends, some $1.13 per share, or a total payout of $120m.

Looking ahead, the company revealed plans to boost poultry production this year by nearly 15 per cent, and to commence exports to European markets after regulators sanctioned imports of Ukrainian poultry products.

In a note to investors, Kiev-based investment bank Dragon Capital said:

MHP posted quite strong 2012 results, with revenues outperforming our forecast by 5 per cent and Bloomberg consensus by 2 per cent. EBITDA matched our projection of $468m and was marginally (1 per cent) below Bloomberg consensus. Revenue growth over the period was mostly attributable to an increase in chicken meat prices (+15 per cent y-o-y to UAH 17.19/kg ($2.1) on average in 2012) as well as higher chicken meat sales volumes (+1 per cent y-o-y) and sunflower oil sales (+12 per cent y-o-y). In 2013, we forecast MHP’s total revenues at $1.4bn (almost flat y-o-y) and EBITDA at $499m (+7%), for an EBITDA margin of 35.5% (+2.3pp y-o-y). MHP’s dividend announcement is truly significant, making it the first company in Ukraine’s listed food & agriculture universe to distribute profits to shareholders.

It’s a slightly less rosy yet still positive story when it comes to the leading producer of eggs in the Eurasia region, Ukraine’s Avangard.

According to 2012 results released on Tuesday, Avangard’s revenues and EBITDA increased by 14 per cent year-on-year reaching $629m and $280m, respectively. Net income surged by 16 per cent to $228m.

Dragon Capital concluded:

While Avangard’s 2012 revenues came in slightly below expectations (-1 per cent vs. our projection and -3 per cent below Bloomberg consensus), profitability was stronger than forecast, with EBITDA coming in 17 per cent higher than our projection and 4 per cent better than Bloomberg consensus and net income outperforming our forecast and Bloomberg consensus by 22 per cent and 7 per cent, respectively. Overall, we find the results quite strong. However, in view of Avangards’s corporate governance risks, we put the stock under review for clarification of previously reported “optimization” at the company’s pre-IPO production sites. We believe such restructuring could materially affect our operating and financial outlook for the company. Having obtained little explanation so far, we are waiting for further clarification from management to revise our valuation model.

Related reading:
Ukraine’s MHP: poultry for Europe, beyondbrics
Ukraine: basket of promise, FT
EU gives Ukrainian poultry a green light, FT